Li Ning (02331) Report Interpretation

Overview

This conference-feedback update examines whether Li Ning's retail-sales trend is improving into the third quarter. Morgan Stanley points to August stabilization, while noting continued discounting pressure, and supports its Overweight view with a valuation based on normalized earnings power.

Core views

Morgan Stanley reports that Li Ning's retail sales were down by high single digits or more in July, consistent with its 1H26 earnings discussion. The trend improved in August: offline sales were less negative, while successful livestream events lifted online sales. On balance, the institution judges August retail sales to have been relatively stable year on year, suggesting a better exit rate for 3Q. Management viewed it as too early to assess September, although it expected the Mid-Autumn Festival calendar shift to provide support. The report flags that offline discounting became deeper in July and August because of industry competition and a higher share of outlet-channel sales. It emphasizes that this was not inventory destocking, noting that Li Ning had previously reduced its 2H26 orders. Thus, the report distinguishes current promotional pressure from a forced inventory-clearing situation, while still identifying discounts and competition as important operating risks. The Stephen Curry China tour produced a very high sellout rate for prepared merchandise, according to the company, increasing its confidence in the partnership. However, the full Curry merchandise range is not expected before 4Q27 at the earliest because substantial design work remains. Morgan Stanley also did not receive company comment on offshore-trust tax news and refers to its earlier observation that the major shareholder had been buying rather than selling. For valuation, Morgan Stanley uses a 17x target P/E on its 2026 EPS estimate. The multiple is above Li Ning's trading multiples over the prior three years because the institution believes current earnings power is obscured by elevated marketing investment and legacy non-cash charges. Its model forecasts 2026-28 CAGRs of 6% for sales and 7% for adjusted net profit. The stated positive catalysts are continued core-footwear momentum, a faster basketball recovery alongside continued running strength, improved discount and inventory quality, and shareholder returns; downside risks include severe macro headwinds, unfavorable competition, deeper discounts, retail-sales growth lagging peers, and ineffective capital allocation.

Analysis framework

Morgan Stanley combines management-conference feedback on monthly retail trends, online and offline channel performance, discounting, inventory and product categories with its financial model. It then values the shares using a target P/E multiple on its 2026 EPS estimate and tests the thesis against operating, competitive and capital-allocation risks.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Target price based on a 17x price-to-earnings multiple applied to Morgan Stanley's 2026 EPS estimate.

  The report values Li Ning against expected earnings, using a multiple above its prior three-year trading range because it considers current earnings power temporarily obscured by marketing investment and legacy non-cash charges.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Li Ning (02331.HK)

  Primary covered company; Morgan Stanley expects a better 3Q exit rate as August sales stabilized.

  Strengths

  Core-footwear momentum, potential faster basketball recovery, continued running strength, strong Curry-tour merchandise sellout, and potential improvement in discount and inventory quality.

  Weaknesses

  July sales weakness and deeper offline discounts amid competition and outlet-channel mix.

  Comparison

  The report identifies the risk that retail-sales growth underperforms peers.

  Risks

  Severe macro headwinds, unfavorable competition, deeper discounts, weaker peer-relative sales growth, and ineffective capital allocation.

Key data

• July retail-sales trendDown high single digits (%) or moreManagement feedback, consistent with the 1H26 earnings discussion.
• August retail-sales trendRelatively stable y/yOffline became less negative and livestream events supported online sales.
• Target priceHK$22.50Based on 17x Morgan Stanley's 2026 EPS estimate.
• Closing share priceHK$12.58As of September 17, 2026.
• Implied upside79%Up/downside to the stated target price.
• 2026-28 sales CAGR6%Morgan Stanley projection.
• 2026-28 adjusted net-profit CAGR7%Morgan Stanley projection.
• 2026E EPSRmb1.05Morgan Stanley model estimate.

Impact & implications

The report argues that August stabilization offers a more constructive near-term sales setup than July, while the valuation thesis rests on eventual recognition of underlying earnings power. Its positive view remains conditional on category momentum and business-quality improvement outweighing competition and discounting pressure.

Risks

• Severe macro headwinds could weaken demand.
• Unfavorable industry competition could intensify pressure on the business.
• Retail discounts could deepen further.
• Retail-sales growth could underperform peers.
• Capital allocation could prove ineffective.

What to watch

• Whether September sales receive the expected support from the Mid-Autumn Festival calendar shift.
• The trajectory of offline discounting and the outlet-channel sales mix.
• Whether basketball recovers faster while running and core footwear retain momentum.
• Progress toward a full Curry merchandise launch, expected no earlier than 4Q27.